Global Strategy & Leadership Notes Module 1 Carl von Clausewitz: Tactic is the art of using troops in battle; strategy is the art of using battles to win wars (military theorist) Adam Smith (>200 years): invisible hand – self-interest behaviour self-regulated the marketplace Alfred Chandler (1962): visible hand – how capitalist function, administrative structure and managerial coordination Michael Porter (1980): 1. Firms profitability was determined by characteristics of its industry and by its position inside that industry 2. 2 options: a. Low cost producer b. Differentiate products/offerings – higher profit margin. Competitive strategy: achieve an outcome where a different path has been taken to deliver a unique product/solution. Transform activities performed. How? By focusing on a niche market, a particular geographic location or a specific type of market. Henry Minztberg (1978): Strategy should be flexible, develop continuously and emerge from intuition and creativity Operational effectiveness: improve performance of activities

Porter: maximum value a company can deliver at a given cost, given the best available technology, skills and management technique

Vision and mission articulate strategy Performance review: comparison between strategy and organisation’s performance

Managing: 1. Planning, coordinating and organising 2. Have subordinates 3. Get others to do Leadership: 1. Influencing activity, not forcing action, conversation 2. Have followers 3. Getting others to want to do Leaders: 1. Are not necessarily managers 2. Leader’s part of each step of strategy: i. Driving analysis ii. Reviewing outcomes iii. Determining key aspects of the strategy iv. Developing the plan v. Implementing the strategy 3. General moral guide leaders 4. Rules and laws restricts their behaviour/ensure act appropriately

Ethics Classical view of ethics – Milton Friedman: 1. Primary obligation of senior management team is to provide a return of investment to the owners (shareholders) of the organisation they work in 2. Profit maximising activities, without fraud/deception 3. Increase profit through open competition 4. No place for social responsibility and morality 5. Embraces legal and economic imperatives Socioeconomic view of ethics 1. Leaders have a responsibility to the society that creates and sustains them 2. Protect and improve society’s welfare 3. Complies with law and morality of society 4. Pursues long-term goals for the betterment of society 5. Embraces legal, economic, ethical imperatives and a proactive dimension of decision- making

Strategy approaches Whittington (1993): Processual and rational Rational approach (1960s) 1. Linear and mechanistic approach (step-by-step) 2. Conception and execution are discrete, sequential activities 3. Organised plans 4. Market positioning 5. Planning 6. Culture and political values are built into the strategy 7. Chandler (1962) – Straightforward process made up of 2 chronological activities (set basic long term goals -> implement course of action and allocating the resources to reach goals) - Purpose 1: Assess organisation and environment - Purpose 2: Achieve fit between organisation and environment - Purpose 3: Forecast and plan future Processual approach (1970s) 1. Alternative perspective based on studies of strategy in action 2. Incremental, inconsistent and ad hoc manner 3. Pattern in a stream of decisions (Mintzberg) 4. Strategy constructed to make sense of what has happened and orchestrates what will happen 5. Focus on competencies 6. Build the requisite internal skills/resources 7. Small, gradual adjustments and adaptations to the marketplace 8. Quinn (1998) – strategy deals with unknowable, not the uncertain 9. Complex, interactive and adaptive 10. Crafting – innovation, creativity and alteration

Evolutionary approach (1980s) 1. Market forces determines which organisation will survive and which will fall, not managerial actions 2. Environment selects the best, not managers 3. Work on achieving competitive advantage by improving operational efficiencies in short-term 4. Focus on creating a range of innovative products/services for market to select

Systemic approach 1. Related to processual approach 2. Strategy is embedded in the cultural values, norms and rules of the organisation and society it operates Summary of 4 approaches to strategy Rational Processual Evolutionary Systemic Strategy Explicit and Implicit and Effective Encapsulated deliberate emergent Objective Profit- Stakeholder Survival Local approval maximisation needs Focus Internal Internal (politics External External (planning to and perceptions) (markets) (society) control the environment) Processes Analytical Negotiation / Darwinist Social learning Influences Economics, Social Economics, Sociology military psychology, biology political science Development 1960s 1970s 1980s 1990s Organisation Singular Multiple (managerial) coalitions, political reality, unified coherent

Importance of each strategy Rational approach - Organizing framework to think through and plan strategy

Processual approach - Important when rational approach is limited in usefulness - Particularly at stage of strategy implementations - Avoid strategic drift, otherwise innovation and creativity is stifled

Evolutionary approach - Variety and diversity

Systemic - Sensitive to social context

Implications of a leader 1. Sensitive to the environment for new ideas/challenges 2. Create context rather than plans, encourage innovation and variety 3. Tolerate imperfection 4. Keep rules simple and build adaptive tension/provide sufficient order to make things happen but not stifle people with rigid controls Strategic thinking 1. Linking concepts to operational practices 2. Able to understand and articulate the big picture of potential strategic directions and developments 3. Act strategically to solve problems/take advantage of opportunities in the marketplace 4. Interact with internal and external 5. 2 dynamics a. Integration and alignment of people and functions in organisation (culture, information systems, structure, performance system, operational areas) b. Relationship between the organisation and its environment Strategic planning – formulate effective strategy Strike a balance between strategic thinking and strategic planning to stay ahead Strategic fit 1. Match between organisation and current industry 2. Types of products/services offered 3. The way organisation structures and perform its activities to deliver goods/services Strategic focus - Doing the same things as before, but doing them better Strategic stretch 1. Encourage leaders/manager to think outside the box 2. Explore/imagine different ways to develop new products or provide existing products/services 3. Opens up possibilities that competitors may not have identified/pursued 4. Develop and grow at a rate that outpaces its competitors The leading edge of strategy: Fit or stretch Aspect of strategy Environment-led ‘fit’ Resource-led ‘stretch’ Underlying basis of strategy Strategic fit between market Leverage of resources to opportunities and improve value for money organisation’s resources Competitive advantage Differentiation directed by Differentiation based on through correct positioning market need competences suited to or creating market need How small players survive Find and defend a niche Change the rules of the game Risk-reduction through Products/businesses Competencies portfolio Investments by corporate Strategies of business units Strategic capabilities or centre or subsidiaries core competencies

Strategy equation 2 dynamics 1. Alignment or fit an organisation’s strategy with its parts 2. Fit between an organisation and its environment

Strategy = ≥ stretch to cover the ‘fit’ = maximising/expanding current structure

Levels of strategy 1. Corporate 2. Business 3. Functional

Globalisation Drivers of globalisation 1. Competitive forces 2. Technological forces 3. Social forces 4. Political forces

Competitive forces 1. Trade barriers lifted 2. Raise quality of standards 3. Lowered prices

Technological forces 1. Enabled economies of scale 2. Outsourcing components supplies to low cost countries 3. Reduced cost of international business communications

Social forces – convergence of taste (global consumers)

Political forces 1. Advanced of world trade 2. Facilitate growth

Challenges of globalisation 1. Competition 2. Distribution 3. Macro-economic 4. Socio-economic 5. Financial 6. Legal 7. Physical 8. Political 9. Socio-cultural 10. Labour 11. Technological 12. Globalisation risk

Benefits of globalisation 1. Cost benefits 2. Timing benefits 3. Learning benefits 4. Arbitrage benefits

Value of localisation – differentiation vs standardised products/services

Role of accountant in strategy Accountant as a strategic business driver

Five elements of strategy 1. Arena Where will we be active? (and with how much emphasis?) a. Which product categories? b. Which market segment? c. Which geographic areas? d. Which core technologies? e. Which value-creation stages?

2. Vehicles How will we get there? a. Internal developments? b. Joint ventures? c. Licensing/franchising? d. Acquisition?

3. Differentiators How will we win? a. Image? b. Customization? c. Price? d. Styling? e. Product reliability?

4. Staging What will be our speed and sequence of moves? a. Speed of expansion? b. Sequence of initiatives?

5. Economic logic How will we obtain out returns? a. Lowest costs through scale advantages? b. Lowest costs through scope and replication advantages? c. Premium prices due to unmatchable service? d. Premium prices due to proprietary product features?

Module 2 What will happen in that industry in the future? Will it grow? What is the expected future profitability of the industry? What are the causes of that profitability?

Key success factor – how well an organisation is placed within external environment?

Industry – grouping of organisation or business units participating in similar economic/commercial activities that produce goods or services

Market – a group of consumers with similar needs, or a geographic area with a targeted focus External environment – everything external to the organisation (e.g. markets, industries, political forces, regulations, environmental issues, society, technology and a variety of other factors) Difficulties of analysing external environment - Difficulties in framing the scope of analysis, including industry and market definition due to the breadth of the analysis required; - Difficulties in sourcing reliable data to analyse; - Uncertain and ambiguous signals produced by the environment make interpretation difficult; - Focusing on the past may not help predict the future; - Factors that have shaped the industry’s growth, profitability or competitiveness to date will not necessarily have the same impact on the industry’s future state; and - Many of the factors in external environment analysis are outside the control of the organisation and difficult to predict

Wide definition of industry - more time-consuming and difficult - minimise risk of missing new trends coming from new entrants/substitutes

Narrow definition of industry - may exclude products/services/geographic regions - increases likelihood that trends may be missed

Value chain

1. Comprises the business processes, people, organisation, intellectual property, technology and physical infrastructure that transform raw materials/talents into finished goods/services, offered and distributed to the consumer to satisfy demand 2. Service – convert ‘know-how’ into a format (e.g. advice to client) 3. Understand where the organisation is positioned 4. What activities are taking place upstream/downstream from where the organisation is positioned? 5. New value is created at every stage a. Measure of value – return on investment, debt-equity ratio, price-earnings ratio etc Raw materials -> manufacturing -> distribution -> consumers

(low risk) Upstream  Downstream (high risk) Low supplier power High supplier power Vertical integration

Industry segmentation 1. Segment definition 2. Total segment size 3. Average annual growth rate 4. Explanation of data

Industry life cycle 1. Introduction 2. Growth 3. Maturity 4. Shake-out 5. Decline 6. Renewal

Introduction 1. New and few competitors 2. No threat of substitutes 3. Power of buyer is low (few alternatives) 4. Power of supplier is high (no significant impact yet) 5. Different visions on how industry will develop 6. Many different approached in the industry

Growth 1. Established 2. Grow rapidly 3. Surge in new competitors 4. Rivalry is low (yet to gain market share) 5. Power of buyer still relatively low 6. Demand > supply 7. High growth rates 8. Cash short (invest to cater for high-growth and expansion) 9. Keeping up with current demand (not looking at future) 10. Competitive differentiation is not critical importance

Maturity 1. Growth rate reduce (normal rate) 2. Rivalry intensified 3. Consolidation (e.g. merger) 4. Supply ≥ demand 5. Power of buyer increasing 6. Majority of organisation stays 7. Knowledgeable and demanding customers 8. Not all organisation survives 9. Focus on efficiency, cost control and market segmentation 10. Strategic management concepts come into force

Shake-out 1. Plateau and decline of growth and profitability 2. Organisation leave industry 3. Rivalry reduced 4. Competitiveness reduced 5. Remaining organisation dominates industry (through mergers, acquisitions and takeovers, dominating own products) 6. Organisation protect and maintain position

Decline or renewal 1. Growth and profitability decline 2. Threat of substitute is high (catalyst on industry decline) 3. Large number of organisation leave 4. Return on investment unsatisfactory 5. Domination no longer yields return 6. Products/services no longer useful (replaced) 7. Strategic management concepts more important to maintain unique position in a win- lose environment 8. Sales at expense of other industry players, unless new niche found

External environment

Define industry 1. Remote environment a. Political b. Economic c. Social d. Technological e. Environment f. Legal

2. Industry environment a. History b. Market c. New entrants d. Suppliers e. Buyers f. Industry rivalry g. Substitutes h. Government i. Life-cycle j. Suppliers’ supplier k. Buyers’ buyer l. Competitors m. Strategic groups n. Customers

Industry growth 1. Population growth 2. Price inflation (same value, different price)

Remote environment – macro-environment of an industry (determines growth)

Factors influencing industry growth 1. Political a. National government b. State government c. Local government d. Governing bodies e. Lobby groups/interest groups

2. Economic a. National factors b. State factors c. Regional factors d. Industry factors

3. Social a. Trends in customer base and behaviour b. General social trends

4. Technological a. Level of infrastructure b. New technology

5. Environment a. Impacts of environment on the industry

6. Legal a. Regulations b. Changing laws and frameworks affecting industry (local and international) Industry environment analysis Determine profitability 1. What are the forces within the industry that determine the profitability of the industry? 2. Based on these forces, what is the current and expected future profitability of the industry? 3. How are the forces changing and how are they expected to change over time?

Porter’s five forces model determined profitability 1. Threat of new entrants to the industry 2. Power of suppliers to the industry 3. Power of buyers from the industry 4. Power of substitutes for the industry’s products and services 5. Intensity of industry rivalry between competitors

↓impact of forces ↓ industry rivalry ↑ profitability ↑impact of forces ↑ industry rivalry ↓ profitability

Porter’s five forces

1. Threats of new entrants to the industry 1. Little expertise required 2. Low cost of entry 3. Easy access to products 4. Barriers to entry? (patents, technology) a. Industry size – small industry = most likely not attractive (insufficient size to gain market share) b. Economies of scale i. large volume of production and sales ii. cost reduction – volume discount from suppliers iii. efficient capacity utilisation iv. learning effects reduce labour costs c. product differentiation d. intellectual property e. capital requirement – large capital investment per unit of output in facilities f. switching costs i. high costs, low chances of switching ii. low costs, high chances of switching 5. How significant is the entry? (multinational?) 6. Access to distribution channels – may be locked by existing competitors 7. Government policy a. Licensing restrictions b. Foreign investment limitation

2. Power of suppliers in the industry (mirror image of power of buyers) 1. Concentration

↑concentration ↓ supplier ↑ supplier power (less suppliers) ↓ concentration ↑ supplier ↓ supplier power (lots of suppliers)

2. Raise price 3. Determine quality 4. High switching costs 5. Product/service is unique 6. Able to forward integrate 7. Purchaser buys small percentage (insignificant) 8. Lots of buyers

3. Power of buyers (mirror image of power of suppliers) 1. Important buyers have power, reduces profitability 2. Force price down 3. Play off competition against each other 4. Bargain better quality/service 5. Purchases large proportion of product/service 6. Able to backward integrate 7. Many alternative suppliers (standard product/commodity) 8. Low switching cost 9. High percentage of buyer’s cost (significant) 10. Product/service is easily substituted 11. Example of high power: buyers consist of a few large retail chains

4. Power of substitutes 1. Other products/services that can be used

↑ substitutes ↑ buyer’s bargaining power ↓ substitutes ↓ buyer’s bargaining power

2. Direct/indirect substitute 3. Products/services sharing same available dollars 4. Bundling to make it difficult to compare

5. Intensity of industry rivalry 1. Degree of competitiveness between existing industry competitors 2. Number of competitors ↑ competitors ↑ rivalry ↑ (difficult to compete) 3. Rate of industry growth and profitability ↓ growth/profitability rate ↑ rivalry to gain market share 4. Amount of fixed costs ↑ fixed cost ↑ discount (to utilise capacity) ↑ rivalry 5. Capacity ↑ capacity ↑ incentive to fully use capacity ↑ rivalry 6. Degree of government involvement 7. Exit barriers ↑ barriers (difficult to leave) i. Investment in specialist equipment (not transferrable between industries) ii. Specialised skills iii. High fixed costs

Conclusion 1. All forces are high, profitability low; or 2. All forces are low, profitability high

(Opposite effect)

Risk free return (0-5% per annum) Expected inflation return (2-5% per annum) Risk returns (2-8% per annum) Profitability (4-18% per annum)

Market Market segment analysis 1. Definition – what makes up the market? 2. Needs – what does this market need? 3. Preferences – what extras would be appreciated? 4. Current solutions – what currently meets those needs? 5. Market size – what is 100% of this market worth? 6. Market growth – what is the growth history of this market?

Customer market segmentation 1. Organise operations to respond effectively and efficiently to the requirements of different customer market 2. Approaches a. Demographic (age, income, gender, family size, religion, race, nationality, language) b. Psychographic (culture, lifestyle, personality style) c. Behavioural (usage level and brand loyalty) d. Distribution (where they purchase products) (online/supermarket) e. Geographic (location)

Red Ocean (saturated competitive market)

Blue Ocean (unsaturated market) 1. New customer market 2. Seeking, capitalising on latent consumer demand -> gain undiscovered profit 3. Value innovation a. Provide costs benefits for organisation b. Improve value proposition to consumers c. New and improved offerings d. Increase in sales e. Superior value (precipitated) 4. 4 actions framework a. Reduce – which factors should be reduced well below industry’s standard? i. factors striving to stay aggressive, but no advantage over competitors, generate little/no profit b. Create – which factors should be created that the industry has never offered? i. create new consumer demand ii. new products/services for unmet demand c. Raise – which factors should be raised well above the industry’s standard? i. Factors above industry’s standard ii. Competitive advantage factors d. Eliminate – which factors that the industry takes for granted should be eliminated? i. factors taken for granted but no or little value left, often used for development of the now (current) red ocean (what factors made it a blue ocean previously?)

Basis of competition 1. Demand – what drives demand for products/services of industry? 2. Choice – what drives price, product performance and supply availability? 3. Price – how is price determined in the industry? 4. Costs – what are the main drivers of cost in the industry? 5. Current and potential risks – what are the current and potential risks?

Competitive positioning matrix 1. Assess organisation positioning within an industry 2. A tool that illustrates where competitors lie on the matrix to enable the interpretation of strategic implications

Industry key success factors Critical for organisation to be successful

Competitor analysis 1. Five forces - intensity of rivalry 2. Know competitors’ position in industry 3. Know competitors’ strength to: a. Confirm and communicate competitive advantage to customers b. Use competitive intelligence to see missing trends c. Key-input for strategic decision making -> position differently from competitors 4. List of questions a. What is its business strategy? b. Who are its key stakeholders and what are their objectives and values? c. What is its current position in terms of market share, financial performance, operating efficiency and long-term growth and development? d. What plans does it have to change either the scope or nature of its operations? e. What is its operating position in terms of its current volume compared with its maximum capacity, its breadth of product range and its relative cost structure? f. What distinguishing features or customer benefits does it have? In other words, what is its value proposition? g. What are its key capabilities or competitive strengths? h. What are its key competitive weaknesses? i. What assumptions does it hold about the industry and about itself?

Module 3 - Understand whether the organisation is currently operating successfully - Assess whether current objectives are appropriate for external and internal environment (e.g. key stakeholders, operational performance and organisation capabilities)

Understanding key stakeholders Stakeholders 1. Any group/person of individuals, internal or external to the organisation that has an interest in or impact on the business or corporate strategy of the organisation 2. Power to influence strategy or performance of that organisation 3. Failure to recognise them can create strategy blind spots – affect performance

Step 1 – Identify stakeholders 1. Inconsistent values and attitudes leads to conflict at some stage – unfavourable consequences 2. May consist of community, board members, government, shareholders, employees, competitors, customers and suppliers 3. Identify each stakeholders’ needs (requirements)

Step 2 – Alignment of stakeholder needs 1. Organisation needs support and efforts of key stakeholders 2. Properly engaged and managed

Step 3 – Assess stakeholder group 1. Power interest grid a. Assess varying levels of interest b. Power of each stakeholder group c. See which stakeholders are likely to have an interest in the strategy and cross reference against who has the power to influence its direction ↑ interest ↑ power ↑ consideration to attend the stakeholders’ needs 2. Identifies a method to prioritise attending to the interests of stakeholders 3. How to go about responding to each stakeholder and their respective needs

1. Crowd a. ↓ power ↓ interest b. Minimal influence on strategic decisions c. Smaller suppliers, customers and employees 2. Context setters a. ↑ power ↓ interest b. Have ability to influence organisation’s strategy but unlikely to get involved unless a significant issue draws their attention c. Government, regulators d. Large customers or suppliers 3. Subjects a. ↓ power ↑ interest (positive and negative) b. Little impact on strategic organisational behavioural c. Because high interest may develop power through lobbying or other strategies d. Employees, shareholders, certain suppliers and customers relying on the organisation e. External monitors (environmental and governance group) 4. Players a. ↑ interest ↓ power b. Critical stakeholders c. Exert influence on strategic decisions d. CEO, senior executives and particular employees e. Larger shareholders and directors

Step 4 – Techniques for interacting with stakeholder groups 1. Minimise difficulties and increase level of positive engagement with the organisation 2. Partner a. Large amount of power and interest b. Ensure they are involved and listened to c. Have considerable input and influence 3. Consult a. High interest, low power b. Attempt to address their concerns c. Increase their engagement and acceptance 4. Inform a. Low power, low interest b. Keep communication on 5. Manage a. Other stakeholders b. Their expectations and requirements

Assessing current performance 1. Determine what trends are taking place 2. The rate of change that exists 3. Key objectives a. How might the organisation plan for growth? b. What future products/services could it deliver c. What markets and customers will it service? d. How will it differentiate against its competitors? e. What position does it hope to hold in the industry in the future? (e.g. market leader)

Strategic driver 1. Industry and market 2. Customers 3. Products/services 4. Channels 5. Competitive advantage

Industry and market 1. Analyse customer market share against the growth rate of the industry (where is the organisation located) 2. Market – 2 types a. Customer markets b. Geographic market – may have different distribution requirements and systems

Customers 1. Different needs and require different sales models/distribution channels 2. Generator of profits – collect and display data show customer trends and profitability

Products/services 1. What business are we in? 2. Analyse key products/services that the organisation offers 3. How those products/services are performing? 4. Boston Consulting Group (BCG) matrix a. Assess products in terms of market growth and share b. Identify promising products i. Core to organisation/market ii. Well positioned for growth